A new social investment tax relief could pose a risk to gift aid if it is set at a higher rate than wealthy donors can recoup from making a donation, the Charity Finance Group has warned.
In its response to a government consultation on the proposed SITR, which closed earlier this week, the CFG said the rate of relief available to investors should be lower than the top rate of tax relief.
The government has committed to introducing SITR in the next finance bill and published draft legislation for consultation. The relief will offer an income tax rebate to those making unsecured investments in asset-locked bodies – charities, community interest companies and community benefit societies – and in social impact bonds.
The government is still considering the level of relief which is offered.
Big Society Capital, the social lender wholesaler, has called for the government to set the level of relief an investor can reclaim at 30 per cent, equivalent to that available to investments under an existing scheme, the enterprise investment scheme, for investors buying shares in small, profit-making businesses.
A donor earning more than £150,000 currently pays a top tax rate of 45 pence in the pound, and can reclaim 31.25 pence for every £1 they donate to charity.
However if the top tax rate was to drop to 40 pence in the pound that donor would be able to personally reclaim only 25 pence for every £1 they donate to charity – making the relief a taxpayer could personally receive on an investment in a charity more generous than the relief on a gift.
Reducing the top rate of tax to 40 pence in the pound is supported by many Conservatives, but opposed by their Liberal Democrat coalition partners.
Jane Tully, deputy director of policy and engagement at the CFG, said: “We have concerns that this relief could pose a risk to gift aid. We wouldn’t want a relief that’s higher than the donor gets for making a gift.
“We don’t necessarily know that there would be displacement from giving to loans if the relief was set at that level, but it’s a legitimate concern.”
However Simon Rowell, director of strategy and market development at BSC, said he felt it was most important that SITR matched the rate of EIS. “We think the rate of relief is the key issue,” he said. “We want to attract the people currently making investments using EIS, and to do that we need to make this relief at least as attractive.
“We think this is the main question outstanding about the relief.”
